UK economy treading water ahead of Brexit - British Chambers of Commerce

LONDON (Reuters) - Britain’s economy is “treading water” ahead of Brexit, the British Chambers of Commerce (BCC) said on Friday after it downgraded forecasts for growth over the next two years.

FILE PHOTO: Workers are seen in the Canary Wharf financial district in London, Britain, November 11, 2013. REUTERS/Eddie Keogh/File Photo

The BCC expects growth next year to be the weakest since the 2008-2009 recession, with gross domestic product rising by just 1.2 percent, down from an earlier 1.3 percent forecast. Growth in 2019 is predicted to be little better at 1.4 percent.

“While some businesses report strong trading conditions, the UK economy as a whole is treading water, and there is no sign on the horizon of a return to healthier levels of growth,” BCC Director General Adam Marshall said.

That is despite a slightly improved 2017 growth forecast of 1.6 percent, up from 1.5 percent previously and reflecting resilience in consumer spending.

The latest Reuters poll of economists also suggests Britain’s economy is likely to expand 1.6 percent in 2017, before growth slows to 1.3 percent in 2018, assuming the Brexit process goes smoothly.

Overall the BCC said it was clear that sterling’s sharp fall after last year’s vote to leave the European Union had done more harm than good.

Britain’s economy was probably stuck on a “slow-growth trajectory”, reinforcing the need for the government to quell uncertainty about Brexit and the business environment at home.

The economy had its slowest first half of the year since 2012 as households came under pressure from a big rise in inflation following the fall in sterling.

“Our forecast suggests that the hoped-for rebalancing of the UK economy towards investment and export is unlikely to materialise in the medium term,” Marshall said.

There is little evidence that customers are switching away from imported goods that have become more expensive in the wake of the pound’s post-Brexit vote plunge, which the BCC said was likely to weigh on Britain’s trade performance.

“A cheaper currency does not automatically mean an export boom, no matter how some politicians and commentators will it to happen,” Marshall said.

The industry group, which covers businesses employing about one in five private-sector workers, pushed back its forecast for the first Bank of England interest rate hike by six months to the third quarter of 2018.